Over the last four years, the price of unleaded 93 petrol has risen by 119%, with similar increases for unleaded 95 petrol and diesel.
Also read: Finance minister freezes fuel levies for 2024/25 due to high cost of living
These significant fuel price increases have caused tremendous pain for South African motorists, who are already dealing with high interest rates and rising food prices.
According to BusinessTech’s analysis, the price of unleaded 93 petrol increased from R11.51 per litre in May 2020 to R25.15 in May 2024.
The price of unleaded 95 petrol rose from R12.22 in May 2020 to R25.49 in May 2024, while diesel rose from R11.19 per litre to R22.24 during the same period.
This means that South Africans pay more than 100% more for fuel today than they did four years ago. However, price increases hurt more than just motorists.
In South Africa, most products are transported by road. Transnet’s collapse exacerbates the situation by forcing mining companies to use road freight instead of trains.
The higher petrol and diesel prices force logistics companies to raise their prices to cover rising costs.
Higher transportation costs affect the entire value chain because fuel is a universal economic input that can raise the cost base of all goods and services.
Gavin Kelly, CEO of the Road Freight Association (RFA), stated that approximately 85% of all goods moved through and around the country are transported by road at some point.
Fuel accounts for more than half of the transportation costs associated with road freight. As a result, higher fuel prices increase transportation companies’ operational costs.
Explore Cape Town and its surroundings with these incredible deals on cars for under R100 000. Find car listings here.
Higher transportation costs are passed on to consumers through higher retail prices. This applies to almost all products, including food and electronics.
Higher product prices result in higher inflation, reducing consumers’ purchasing power.
Higher inflation prompted the South African Reserve Bank to raise interest rates, putting additional pressure on consumers through increased debt repayments.
Inflationary pressures can also cause interest rates to remain higher for longer periods. Lesetja Kganyago, Governor of the South African Reserve Bank, stated that no interest rate cuts would be implemented until inflation was under control.
‘Rates are where they are because inflation is what it is,’ Kganyago said in an interview with Bloomberg in Sao Paulo last month.
‘The task of taming inflation is not yet done. Until that is done, I don’t see why there should be a change in the monetary stance.’
Higher petrol and diesel prices are therefore bad news for those hoping for interest rate cuts in the short term.
The combination of high fuel prices, high inflation, and high interest rates is catastrophic for South African consumers who are struggling to make ends meet.
It raises the question of whether the government can intervene to lower fuel prices, thereby benefiting struggling consumers and bolstering the economy.
However, this is not easy. The high petrol and diesel prices are linked to global oil prices, the rand’s exchange rate, and fuel taxes.
The government has little control over the oil price or the rand-US dollar exchange rate. Lowering the fuel tax will also be risky.
The fuel levy, an excise tax on petroleum products such as petrol, diesel and biodiesel, is a significant source of revenue for the government.
The fuel levy generated R93.37 billion in revenue during the fiscal year 2023/24. It accounts for approximately 5% of the government’s total tax revenue.
South African motorists received some relief in the 2024 Budget, as the general fuel levy and the Road Accident Fund (RAF) levy were not increased.
However, this is about as much as the government can do without hurting tax revenue and creating an even bigger budget deficit.
Cape {town} Etc discount: Looking for things to do in the city, at half the price? Get exclusive offers here.
Also read:
Significant fuel price drop could be on the cards for June, says AA
Picture: Jay Skyler /Unsplash